A new report commissioned by the National Association of Wholesaler-Distributors shows differing opinions about Internet sales channels. The disagreement may be important enough to strain relationships between distributors and their vendors, the report says.
The NAW report is titled “Facing the Forces of Change: Future Scenarios for Wholesale Distribution.” It suggests that manufacturers and their distributors may experience more friction as Internet use becomes more common in marketing channels and supply chains. NAW's Distribution Research and Education Foundation funded the report. It is based on 1,600 responses from manufacturers, distributors, and customers as well as 75 detailed interviews with supply chain and distribution channel experts.
“Manufacturers and distributors are at odds about the impact of e-business on their relationships,” says Adam J Fein, president of Pembroke Consulting and author of the report. This will slow the adoption of e-business strategies, because both manufacturers and distributors approach their investments in technology from divergent perspectives, he says.
The basic disagreement hinges around providing information to retail customers. Manufacturers are unsure if the Internet provides a way to replace distributors as the primary information source about their products. In contrast, most distributors do not believe that the Internet can provide information as well as their own sales and communication efforts. The report says that 56% of manufacturer respondents expect information exchange over the Internet to generate a loyal customer base by the year 2006. However, 60% of distributors surveyed doubt that the Internet will attract customers.
Internet use will have an impact on inventory levels and logistics, the report says. Two-thirds of manufacturers believe that distributor inventory levels will drop as a result of Internet use. Manufacturers say that distributors will stock less inventory and rely on a higher percentage of just-in-time drop shipments by 2006. Distributors expect the logistics function to become more efficient with 47% of respondents saying that they will begin outsourcing logistics by 2006.
Comfort with existing relationships between manufacturers and distributors provides the strongest competition to expansion of the Internet into the supply chain. Distributors and their customers are reluctant to disrupt supply chains that experience has proved to work. This along with buyers who are becoming increasingly Internet-resistant has resulted in marked sobriety about e-business in the supply chain, the report says.
However, distributors will offer more Internet services including online ordering, bidding, and product information. In addition, manufacturers must become more effective supply channel partners as distributors develop advanced technological capabilities.
The NAW report shows that distributors are worried about their future relationships with manufacturers. They are particularly concerned about manufacturer investment in traditional supply channels; 34% of distributors report the belief that manufacturers are unlikely to invest in existing supply chains. However, a larger percentage of distributors, 44%, expect manufacturers to make significant investment in measures to help distributors become more effective supply channel partners.
The report says that manufacturers must evaluate the business needs of their channel partners carefully before implementing new technology. However, many participants in the supply chain are unsure how to proceed because manufacturers have an expanding range of choices for marketing channel intermediaries. For instance, many third-party logistics companies have thriving materials management operations that perform much the same function as traditional wholesale distribution.
To help manufacturers and distributors plan strategies for supply chain management, the NAW report provides four proposed scenarios for future business-to-business distribution. Each scenario presents a model of the supply chain and marketing channels with varying assumptions about channel partners and a mix of online and off-line activity. The scenarios predict how quickly customers will adopt new technology and how compensation for supply chain partners should be structured. The four scenarios are designed to help manufacturers and distributors build sales and marketing strategies in an uncertain future, the report says.
To purchase a copy of the study, visit the NAW web site at www.nawpubs.org. Study copies purchased online result in a 5% discount.
